This document explains the different types of securities such as equity securities, debt securities, derivative securities, bonds, treasury bonds, corporate bonds, and mutual funds.
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1 Investment Analysis and Portfolio Management Name: Course Professor’s name University name City, State Date of submission
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2 Securities A financial security is document that is held to show that one is an owner of a company that is listed in the stock exchange or is owed a part of the debt issue. They have a monetary value. In recent years’ derivatives have also been emerging as a commonly used financial security. Financial securities have the following features; First, is that they are easily tradable, that means that they can easily be converted into cashRosenbaum, J. and Pearl, J., (2018). Apart from derivatives, securities allow the owner to own underlying asset without taking the physical possession. Securities are categorized into three categories, derivative securities, equity securities and debt securities. 1.Equity securities An equity security is a form of interest in a company’s capital. Owning an equity security signifies that one has contributed to the capital of the company. This share symbolizes monetary valueGhysels, E., Idier, J., Manganelli, S. and Vergote, O., (2016). The owners of equity securities have certain duties and rights that they are entitled to. Apart from being entitled to the company’s profits they are also entitled to participate in the operations of the company through exercising their right to vote. The shortcoming of this type of security is that in an instance where the company is making losses, they get no return. Also, in cases of bankruptcy they are on the losing end. 2.Debt Securities
3 These securities stand for debt that lenders are owed by the companyValdez, S. and Molyneux, P., (2015). There are different categories of debt securities namely, debentures, bonds and commercial papersCorwin, S.A., Larocque, S.A. and Stegemoller, M.A., (2017). They are dissimilar from one another in terms of collateral and maturity. They earn interest until and do not have voting rights. 3.Derivative securities These are securities whose value is derived from an underlying asset such as currencies, stocks, bonds and other assets. They are used to contain risk such as fluctuation of currency and adverse interest rates. Bonds Bonds are loans made to large companies and national governments. They earn a fixed income over a given period of time. The bonds vary according to risk, the issuer, interest rate and maturity length. 1.Treasury bonds These are bonds that are issued by a government to finance a project. They are categorized into short term treasury bonds which are the safest but pay the least interest. There are longer term interest bonds which have marginally higher yields and offer a risk that is slightly less. 2.Corporate bonds
4 These are bonds that are issued by corporates. They highest risk and highest paying are called junk bonds. Mutual Funds This is a pool of money given by organizations and individuals for fund managers to invest in various investment opportunities like bonds and stocks. Since it is collective every investor loses and benefits in equal portion. There are several types of funds namely; fixed income funds, Equity funds and balanced funds, index funds, funds of funds and specialty funds.
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5 References Corwin, S.A., Larocque, S.A. and Stegemoller, M.A., 2017. Investment banking relationships and analyst affiliation bias: The impact of the global settlement on sanctioned and non-sanctioned banks.Journal of Financial Economics,124(3),pp.614-631. Ghysels, E., Idier, J., Manganelli, S. and Vergote, O., 2016. A high-frequency assessment of the ECB Securities Markets Programme.Journal of the European Economic Association,15(1),pp.218-243. Rosenbaum, J. and Pearl, J., 2018.Investment Banking: Valuation Models+ Online Course.Wiley. Valdez, S. and Molyneux, P., 2015.An introduction to global financial markets.MacmillanInternational HigherEducation.